The transportation market is experiencing lower freight rates and excess capacity as fewer loads are shipped with demand for goods down from its pandemic-era peak. The trucking sector in particular is encountering challenges, including ongoing driver shortages, the high price of diesel and increased operational costs.
As trucking firms face tighter profit margins, they’re shopping hard for lower insurance premiums, transportation insurance specialists say.
Deals can be found. But widespread sentiment among insurers is that more rate increases are needed to catch up to the costs of economic and social inflation.
Meanwhile, insurance companies specializing in commercial trucking are embracing technologies like telematics, artificial intelligence and sophisticated safety equipment to inform better risk selection and pricing models and improve driver safety. At the same time, trucking insurance experts stress that technology is there to complement — not replace — experienced claims management and underwriting professionals.
Truckers have gone through a volatile last three years since the start of the COVID. As Americans isolated during the pandemic, consumer spending turned to durable goods. That created a tremendous amount of demand for transportation services to move freight, said Donato Monaco, president of commercial trucking insurance carrier Northland Insurance.
The rates that truckers could charge rose dramatically during the pandemic, while the price of diesel fell off. 2021 and 2022 resulted in two of the most profitable years in the trucking industry’s history.
“Anyone who could get a truck bought a truck and started driving,” said Monaco.
As the world reopened from the pandemic, spending shifted from buying goods to experiences like travel and dining out, causing freight rates to return to pre-pandemic levels. Over the same period, the Ukraine-Russia war led to a spike in diesel prices. The cost of diesel rose more than 95% from 2020 to 2022, according to the U.S. Energy Information Administration.
The cost of doing business has forced some new ventures and owner-operators to shut down over the last 18 months, Monaco said.
“They’re not able to cover the costs of operating because there’s so much transportation capacity in the market that the rates have come down so low that they’re not able to cover the costs of the truck, the rising cost of insurance and the increasing fuel costs,” Monaco said.
Truckers face continuing challenges such as driver shortages, which have plagued the industry for decades. Distracted driving is also still prevalent. Chip shortages used in vehicles have also led to higher vehicle prices and increased maintenance costs, said Nick Saeger, assistant vice president of products & pricing, transportation at Sentry Insurance.
Moreover, economic inflation and a shortage of technicians is causing repair costs to rise from current levels. An October Wells Fargo Research survey of body shop owners found that costs are not expected to improve, while repair times remain slower versus historical norms.
There are still positive signs out there for the trucking sector, Saeger said.
The frequency of claims has reduced as truckers have taken steps to become a safer industry by adopting automatic safety equipment. The use of camera data and telematics gives trucking fleets the ability to access more information at faster speeds, which they can use for driver coaching.
The trucking industry also saw improvements in 2022 on key operational efficiencies, such as driver turnover and equipment utilization across all fleet sizes, according to the American Transportation Research Institute. Overall, that helped the sector see improved operating margins last year.
Additionally, vehicle prices and diesel costs are starting to come back down.
“It’s not dire, but (profitability) is not at the peak levels as it was in ’21 and ’22,” Saeger said.
An Uncertain Insurance Market
The trucking insurance marketplace is experiencing a period of uncertainty as trucking carriers and owner-operators seek out lower insurance rates to drive down expenses, transportation insurance specialists say.
Some insurers are pulling away from commercial auto entirely, while new players in the commercial trucking insurance space are stepping in and able to offer customers lower rates.
“Everybody’s customers can go out and bring their insurance costs down. That’s not new,” said Dan Clements, senior director of sales, underwriting & market development – transportation at Sentry. “But the prevailing sentiment right now for insurance companies is that we still need rate.”
The projection for the commercial auto industry is to finish 2023 at a 106.6 combined ratio, Clements said, as rate increases across the sector have not kept up with severity trends.
While the combined ratio for liability has consistently hovered above 100 over the last decade, a recent AM Best report found that the combined ratio for physical damage is also deteriorating. In 2022, the combined ratio for physical damage jumped to 99.9, up 9 points from the prior year.
AM Best cited higher prices for parts as well as labor shortages for creating more difficulties for commercial auto.
The impact of social inflation and nuclear verdicts is a top driver of rising liability costs. Trucking insurance is an industry that’s been hit hard from larger settlements more frequently, said Monaco. Truckers carry at minimum $1 million of general liability, and many of the larger fleets will have excess coverage. This puts the trucking industry under the watchful eye of leading litigation firms to consider truckers, the experts say. In addition, the trial bar has grown more sophisticated in recent years, whether using artificial intelligence to find claimants or turning to litigation funding.
“It’s akin to whack-a-mole,” Saeger said. “For every time you find something that you can figure out a legislative fix to, there is another that pops and sticks its head up and sticks its tongue out right now.”
With combined ratios on both the physical and liability sides trending in the wrong direction, Clements suspects that almost every insurance company operating in commercial auto believes they’ll need to charge more rate in 2024 than they charged this year. It’s a trend that’s been the case for over a decade.
“Being on the agency side of things, I get asked all the time, ‘When are rates going to come down, when is this going to end?'” Clements said. “I get it. Rates have gone up seemingly forever it feels like. But I always ask, what’s getting better? Name a thing that’s bad that’s improving.”
Even as the commercial auto sector heads for another year of unprofitability, the trucking insurance market is attracting competition from some insurtechs and carriers that don’t traditionally specialize in transportation.
Cover Whale, a commercial trucking insurance provider and fast-growing insurtech, announced in June that it surpassed $500 million in all-time written premium, three years after writing its first commercial auto policy.
Cover Whale attributes its growth to an increasing market acceptance of technology-based underwriting and telematics.
“The trends are heading where premiums are getting more expensive because repairs are more expensive, but at the same time, the improvement of technology and data has never been better,” said Carly Levin, chief strategy officer at Cover Whale. “So those stars are aligning … why would you not use technology and data to improve those insurance premiums?”
Cover Whale provides agents with a quoting platform that offers instant policy quotes and same-day binding.
The company recently hired a chief artificial intelligence officer, who will oversee the incorporation of AI across customer service, driver safety programs and claims analysis.
“The mantra here is we will infuse AI across the business and there’s tremendous opportunity ahead,” Levin said.
As the commercial trucking sector follows the wider insurance industry’s embrace of new technologies, some transportation insurance veterans caution not to hand the wheel entirely over to automation.
Sandi Fritz, vice president of transportation at JM Wilson, a managing general agency and surplus lines broker based in Portage, Michigan, said that transportation is a specialized field in which people need to know coverages inside and out. Established trucking insurance carriers have reliable data that shows what they need to price for a risk, display good loss control and have strong claims service, Fritz said.
“To just say, ‘Hey, I’m comfortable with it all online, not having a retail agent to deal with or specialized carrier, that’s a big element of resources to remove from the equation,” said Fritz “And I hope the trucking industry understands the value of a really solid, good, experienced trucking agent who knows the industry, who knows coverages and values their service and what they bring to the table.”
The influx of insurtechs to the commercial trucking market has transportation insurance carriers facing downward pricing pressure, RPS’s recent 2023 U.S. Transportation Market Outlook noted. Incumbent carriers face more market capacity than in years past, making this a challenging renewal period.
Risks that have performed and have long tenure with one carrier can expect between flat and 5% increases at renewal, the RPS report said, while poor performing risks can expect 15-20% increases.
Harish Kapur, president of trucking wholesale insurer Across America Insurance, said he’s seen new players come in that don’t properly understand the trucking market but are willing to under bid longtime carriers.
“They say, ‘Oh my God, I’m just going to lower my rates and write a bunch of business,'” Kapur said. “Sometimes it’s easy to get sidetracked with the perfume of the premium. It takes away the stinge of the risk.”
Truckers who hop from one carrier to another to secure lower prices should be cautious, transportation insurance specialists stressed. It’s not all about the price, they say.
Monaco, the Northland president, said customers seek out the 75-year-old carrier for its superior services, including its experienced claims team and Special Investigations Group.
Monaco said Northland earns a lot of win backs, where truckers leave for a couple of dollars of savings but then come back, either because of a rate increase or they miss the services at Northland.
“We try to remain constant and not have too much volatility in terms of our guidelines or pricing so that we do try to retain our clients for the long-term,” Monaco said.
Embracing New Technology
One way trucking firms can potentially bring down their insurance premiums is by adopting telematics and other technologies like truck dash cameras. The information recorded by such devices is valuable to insurers, who often will provide premium credits to truckers in exchange for sharing data.
Truckers have long been hesitant about giving away drivers’ information, afraid it could be used against them. Transportation insurance professionals say that fear is not based in fact.
Information shared with insurers is used not to price an individual risk; rather it’s aggregated over time and is used to inform pricing models.
“From the insurance industry side, they’re trying to collect data to see what these drivers are really actually doing?” said Fritz. “How can we help price more adequately for the exposure?”
Most truckers are already accustomed to electronic logging devices, which synchronize with a vehicle engine to record driving time.
Fritz wishes there was a way to help the trucking industry understand that the data collected from their vehicles can only help truckers.
“But it’s hard to get these guys to understand that and get off that Big Brother is watching,” Fritz said. “That’s not the intent at all.”
Insurance agents are often the ones tasked with educating their trucking clients on the advantages of adopting telematics devices. Sentry’s Clements suggests agents talk to truckers about the benefits of using these devices should a claim proceed to trial. The information stored from the truck could eliminate any doubt or potential for a picture to be painted any different than what happened.
“They want the proof to say, this was not my fault, and that’s great,” said Clements.
“There are times too where there’s benefit in knowing this was absolutely our fault and let’s cut to the chase and let’s make this about taking care of the people that were involved in the accident and not necessarily who’s to blame.”
Earlier this year Sentry launched a telematics program with Motive, an integrated fleet operations platform. Of the customers that have shared their telematics data with Sentry through the partnership, more than half have voluntarily put cameras on their trucks.
“With anything new, it takes time for people to gain acceptance of it,” said Saeger. “People didn’t want to buckle up when seatbelt laws came out, right?”
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